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A personal is one that comes with its own pros and cons.
Though the personal loan can be used for a lot purposes it does come with a
higher interest rate.
This higher interest rate is because personal loans are
unsecured loans and carry a lot of risk. Banks do not know if you have the
capability to repay the loan and thus to mitigate the risk they fix a higher
interest rate for personal loans. But as a borrower it will be difficult for
you to pay the loans at such high interest rates each month as it will be a
strain on their income, if you are looking for ways to reduce the interest
rate, read on!
Ways to reduce your
interest rate
1. Check
your credit score: We cannot stress this enough, before you even think of
going for a loan it is best to check your credit score and credit report. If
you have a good credit score (750 and above) then you have paid all your dues
on time and are an ideal customer for the bank. This gives you the upper hand
in any negotiations to get a better deal on your loan.
At the same time another advantage to checking your credit
score is you can rectify any negative points on your report as a bad credit
score is grounds for loan rejection.
2. Do your research: The market has many
lenders who offer personal loans at competitive rates and sometimes this
information could be hidden. This is a due diligence that you need to do so
that you get the best deal.
3.
Negotiate
with the bank:
If you are in good standing with the bank you have your
savings account, who knows about all your salary details and expenses with the
added advantage of good credit score you can negotiate good terms for your
loan. If this does not come to any fruition, then you can look for a suitable
lender that gives you the best for your credit score. However, it is important
to calculate the costs involved in prepaying your loan with your existing
lender and to ensure that the costs are not greater than the savings you will
gain with your new lender.
4.
Ask for a
longer tenure: If you have a long loan period, your EMI reduces
proportionately as your principal and interest is divided over a greater number
of months. However, while the actual monthly outflow will be smaller, you will
be paying out EMIs for a longer period and paying interest for a longer period.
So, while your monthly burden might be smaller, you might end up paying more
over the entire duration of the loan.
5.
Making an
early prepayment: One way to significantly reduce your is to make an early
pre-payment. If you are able to afford the option of prepaying part of your
loan, it is better to do it in the early months/years of the tenure so that
your principal decreases, thereby saving you interest on later payments.
Conclusion
By following these steps, you can reduce the interest and
EMI on your personal loan. You will need to analyze the pros and cons for each
step before choosing to go ahead.
